Wait Til Next Year!

Well, that payroll figure put the cat amongst the pigeons, n'est-ce pas? A headline figure close to zero, the best household figure since late '07, and an unemployment rate that knocked on the door of single digits: what wasn't there to love?

The short answer, of course, was the impact on your author's P/L, where his wretched run sadly continued. He is one one of those miserable stretches where he feels like he cannot buy a win; even formerly reliable strategies seem to have turned against him, knives drawn.

And so it came about last night that Macro Man wearily set himself down on the couch in front of the TV, hoping for a little escapism by watching some NFL with his father-in-law.Now, just before Thanksgiving, he wrote a little piece that compared to sports to finance...in that that case, the undeniable existence of "too big to fail."

Sadly, last night brought about fresh revelations about the linkage between sports and finance, as his favourite team, the Pittsburgh Steelers, dropped another excruciating game to extend their losing streak to four.

The ephinay, as it were, centered not on the last month or so, but rather how Macro Man's peformance seems to have tracked that of the Steelers for the past several years. In 2005, Macro Man had his best year at his previous shop. The Steelers won the Super Bowl. In 2006, Macro Man had his worst year at his previous shop; the Steelers slumped to a 0.500 record and missed the playoffs. In 2007, Macro Man rebounded with a good but not great year; the Steelers made the playoffs but fell in their first game. And last year, Macro Man had a very good year at his new shop, and the Steelers once again claimed the Lombardi Trophy as Super Bowl Champs.

Now, the hallmark of Macro Man's 2009 has been the knee injury that he suffered in February. Strangely, one of the Steelers' (and indeed the NFL's) best performers, Troy Polamlu, has also been sidelined for most of this season with a knee injury.

And so, when the Steelers' once-vaunted defense when into their patented "Swiss Cheese" formation against the execrable Oakland Raiders, Macro Man had a foreboding of doom for whatever flamingos rremained in his portfolio. Sure enough, EUR/USD has confirmed the break of both the trendline and the 55 day moving average that bulls have keyed on for the last several weeks.Ouch.

Now, Macro Man isn't fatuous enough to suggest that there is actually some sort of Vulcan mind-meld going on between himself and 53 rather large gentlemen in the city of his birth. But their twin struggles of late provide confirmation that in trading, like sports, the margin between victory and defeat can be very thin....well, at least if you are playing a fair game.

And so, it looks like the Steelers' season is, for all intents and purposes, over. With just over three weeks left in the year, Macro Man's is too, more or less; there's not enough time to regain the heady heights of his high water mark, at least not without gambling recklessly.

You still have to play the games, of course...but at this point in the season, both Macro Man and the Steelers should be doing so with one eye on next year.

Putting aside the market impact, one must not take the latest payroll data too seriously. The previous months' data was raised by 159k, and the drop in U6 was statistical. The payroll data is fraught with ghost figures, like the "adjustment for the estimated creation of new businesses", "births and deaths" and most of these work to reduce the headline unemployment percentage. It is estimated that it takes around a positive 175k new jobs a month just to keep the 10% unemployment ratio where it is. The US is mired in widespread joblessness with all that implies. And it will persist.

The payroll data was great, but it's weird that it wasn't confirmed by any of the private readings. ADP was down, the NFIB survey shows employment weakening, ISM surveys showed the same, Challenger surveys showed more layoffs and fewer hires, and TrimTabs shows income tax withholdings declining sharply.

I've noted before that we seem to much better than trend data whenever the health care bill is approaching crucial votes: see the other previous decline in the unemployment rate, from 9.6% to 9.5%, in the late summer when they also hoped to get a bill passed. Coincidence?

I think that the rise in Fed funds futures /Eurodollar rates is going to be undone within a month or two.

You sure all your bets don't contain some implicit "NFL Steelers" factor exposure? I know that's one in my risk model. Maybe a boatload of intrade contracts you forget about purchasing jan 1 of each year?

Don't look now but [The Instrument that Cannot Be Named - Because People of a Sensitive Disposition May Be Long It and Are Likely To Throw All Their Toys Out of The Pram] is down again today, as the dollar rallies....

I often read your blog and find it very interesting and informative. Thanks for taking the time to write it so regularly and keeping it light hearted and entertaining.

I was hoping yourself, and the other chaps who use this board could offer some advice: I'm currently 15-months in to a grad career in sales at a large bank. I've got an offer to move to a smaller bank onto a grad programme where I could focus more on trading.

From your perch, would you do it? Why did you move about from different bits of the business?

I'd like to selectively reiterate what MM stated on Friday - especially to LB, Anon posing at thetrader, etc.

I find it most discouraging that on a blog of this quality this message needs to be repeated.

*****************************Lads (and lasses),

While I am quite glad that we've established a lively little community here, please try to remain gentlemen (and ladies.) We've established a discourse here on all things macro that I think is pretty good, and I want to ensure that we avoid the "yahoo message board mentality", i.e 10y ROOLZ! GLD SUX!!!

So please try and keep it civil and retain a collegial tone

I also think it's important that different viewpoints are encouraged;

I don't want this board labeled....I'd much rather have it be known as a "smart" place where different viewpoints can be debated.

So in sum, play nicely, avoid the emotional rollercoaster, and don't get personal. To paraphrase the immortal Ice T: hate the argument, not the arguer.

2010 will bring many new challenges: one or more quarters in which the banks report earnings that will include limited trading profits (for Q4, 2009 and Q1, 2020), retail earnings reflecting weak or flat holiday sales, another dead winter in the malls as consumer savings continue to increase, another spring of dead (North East US) or lower priced (West) housing sales and then the first complete set of corporate earnings reports (for Q2, 2010) for which there are no easy comps.

So given Mr Market's ability to see into the future, one wonders when these factors will begin to be discounted? Note that this analysis assumes an entire winter and spring devoid of external credit shocks, muni defaults, bank reorganizations, bondholder haircuts, sovereign defaults or other swans of whatever hue.

"So given Mr Market's ability to see into the future, one wonders when these factors will begin to be discounted?2 ..the banks have made no headway since Sep options expiry and the financial secondary's have been sidways as well from Oct. In that sense they may already be discounting some future reporting.

Treasuries have already made up a significant fraction of their Friday losses as Helicopter Ben highlights continued weakness in the economy. Clearly many traders agree with the point of view espoused above by Donlast.

They each make a new currency (peso, lira, seashells, whatever) that is equal to a Euro at launch. This isn't crazy, as the current currency of those countries is equal to a Euro (by definition). Their debt is denominated in Euros ... next minute it is denominated in Peso-Liras.

Like all sovereign debt that is "risk free", if you don't like those terms -- a bureaucrat will be pleased to tell you how little your opinion matters. Also, its greedy capitalists like yourself that made the poor people of this country have to take these measures; perhaps we should arrest you and pay you nothing?

Once the "Replacement Euro" (by whatever name) is launched, then they start hurling money out of helicopters until it is worthless...

Unfortunately, this is FAR from the first time we have seen this movie. Sovereign defaults are a common occurrence throughout history.

To paraphrase Peter Lynch, governments need to be set up so that any idiot can run them -- because sooner rather than later any idiot will.

Spain, Italy, Ireland or Greece is in the same position as California. They have a local depression and are dependent on the largesse of others within the ECB, just as Nevada depends on the rest of the U.S. But the European monetary system will not collapse, any more than Florida will secede from the U.S.

LB, the last two World Wars completely rearranged Europe, redrawn borders, new countries and all. Now the EU/ECB has discovered the magical combination that will forever keep Europe united a stable?

J. Stalin: "A nation is a historically constituted, stable community of people, formed on the basis of a common language, territory, economic life, and psychological make-up manifested in a common culture."

US is basically a homogeneous entity unlike the EU. No army, no unified bond market, it's basically being held together by Trichet's mellifluous fables.

Wrong. It's actually being held together by the ongoing illusion that they are all still independent nations. They aren't at any important economic level any more or less than is California. The coin flip over whether it blows up or not is two headed. Don't get on the wrong side of it.

Well I appreciate the disagreement. My take away from today's news was that Greece is likely to be downgraded to BBB+, which would put it in the company of Mexico and Sprint-Nextel.

ABC had a quote that summed up the EZ situation perfectly: "Fighting between riot police and protesters left the streets around central Syntagma Square littered with chunks of broken masonry and burning piles of garbage, which was not cleared away due to a strike by refuse collectors."

Comes in handy when they fancy a swift kebab on the way home, though.... Seriously, CM, a spot of rioting and burning is standard operating procedure in Europe. Anyone would think it never happened in the US. Oh yeah, Detroit, Chicago, Washington and LA...

"I think that the rise in Fed funds futures /Eurodollar rates is going to be undone within a month or two."

How about a day or two? EDM1 went from a low of 97.885 on Friday to a high of 98.150 today, reversing virtually all of the reaction to the payroll numbers.

I bought a lot of Fed Fund futures on Friday (my favorite is May) post NFP (I didn't know that Ben was going to give another "lower for longer" speech, or I would have bought even more). I don't know when the Fed will start hiking, but it won't be at the January, March, or April meetings.

"Spain, Italy, Ireland or Greece is in the same position as California."

I object to lumping Ireland and Greece together. Ireland is taking (very painful) steps to solve their problems. Greece, on the other hand, is in total denial about what they need to do to fix things.